Rising new cases of Covid-19 infections and subsequent lockdowns could have a deeper impact on economic activity in the coming weeks, according to Nomura.
The Nomura India Business Resumption Index, which tracks ultra-high frequency data including mobility, has fallen close to 16 percentage points below the pre-pandemic normal. As on April 18, the index had slipped to 83.8 compared to 88.4 a week ago.
“While lockdown stringency has not increased since last week, this may be temporary, as states could impose stricter restrictions in response to the burdening of hospital infrastructure,” said economists Sonal Varma and Aurodeep Nandi in a report. “This suggests the economic impact of the second wave could intensify in coming weeks, particularly through the mobility route, with the downside risk of spreading to the wider economy, even as power demand and labour participation rate so far remain largely unaffected.”
Most economists so far see the economic impact of the second wave as being less debilitating compared to the first wave. Still, an impact on small businesses and high contact services may be inevitable.
Manufacturing facilities are less impacted so far with states allowing a significant amount of activity to continue. As a result, electricity and employment data, as Nomura said, remains stable for now.
“So far, electricity consumption and goods and services tax e-way bills collection, which are used as proxies to track economic activity, have softened only somewhat,” Crisil said in a report. It needs to be seen whether the softening in these indicators is a blip, or marks a shift in a trend, said DK Joshi and Amruta Ghare, economists at the rating agency.
Nomura, which has pared its forecast for FY22 growth marginally, said the data available so far suggests clear signs of sequential moderation in April but “we believe the second-wave impact on the economy remains far more benign than the first wave”.